Get to know your super

ACCORDING to a recent survey, 77% of Australians aren't confident their super savings will be sufficient to fund a decent retirement. More worrying, many of us are relying on alternative, often radical, plans to fill the gap.

The study by ING DIRECT found workers are pinning their retirement hopes on anything from sales of personal assets and rising salaries to future inheritances. But these sorts of plans overlook the important advantages that super offers.

To begin with, superannuation is lightly taxed - a tax advantage many other investments can't match. Super is also considerably more of a sure thing than a hoped-for major inheritance, which may never happen thanks to increasing life expectancies.

The thing is, Australia's collective superannuation savings have grown to more than $1.34 trillion - an exceptional pool of wealth by any measure. Yet the ING DIRECT research also found that 74% of people don't understand how their super is invested - and this can play a key role in the lack of confidence we have in super.

That being the case, it's not a bad idea to get to know your super better.

Take a good look at your fund statements for the last five, ten or even 15 years. Superannuation is designed to be a very long term asset - one that could be built up over a period of 40 years or more, so focusing on returns for the last few years can be overly off-putting if you still have quite a few years in the work force ahead of you.

As a guide to how super can grow over time, research group SuperRatings says that $100,000 invested in a balanced super fund in 1999 would be worth around $189,735 today. The rise in value is far from steady though. Balanced funds, which most Australian workers choose for their super, have strong exposure to shares so these fund returns tend to rise and fall in line with sharemarket movements.

It also makes sense to look at how much you're paying in fund fees. Every dollar paid in fees is money that could be yours in retirement - and higher fees don't guarantee better returns.

Industry figures show that fees on super funds currently average around 1.20% pa - down from 1.37% in 2002. It may not seem like much of a saving but over time fees can make a real difference to your final payout. Take a look at how your fund stacks up or use the online calculator on the government's Money Smart website (moneysmart.gov.au) to see how fees could impact your retirement nest egg.

The key point is to take an active interest in your super. Yes, super rules keep changing; super is complex; and let's be realistic about it - one of the main ways we can build our nest egg is by sacrificing money we could be spending today in order to have more in retirement. Despite these drawbacks I firmly believe super is good for us - moreover, it is your money, so be involved in it.

Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. Visit www.paulsmoney.com.au for more information.